Texaco Weighing Next Mover

Pennzoil Settlement Looks Unlikely After Ruling

February 14, 1987|By Michael Arndt.

A Texas appeals court decision that Texaco Inc. must pay $8.53 billion in damages to Pennzoil Co. may lessen the chances of an out-of-court settlement by boosting Pennzoil`s expectations, an oil industry analyst said Friday.

Meanwhile, the stock market reacted to the Thursday court ruling by pushing down Texaco`s stock, and lifting Pennzoil`s to its highest level in more than a year.

At midafternoon, Texaco was down $3.37, to $35.12 a share, on the New York Stock Exchange. Pennzoil was up $9.87, to $80.87.

On Thursday, a Texas court of appeals in Houston upheld a November, 1985, jury award that orders Texaco to pay $7.53 billion in actual damages for unlawfully interfering with a planned merger of Pennzoil and Getty Oil Co.

The three-judge appellate panel also ruled that Texaco must pay $1 billion in punitive damages. The trial jury had awarded $3 billion in punitive damages, a sum the appeals court found ``excessive.``

The reduced award nevertheless remains the largest civil judgment in U.S. history.

Texaco, the third-largest oil firm in the United States, said it will file for a rehearing of the unanimous appeals court decision and failing that would appeal to the Texas Supreme Court and, ultimately, the U.S. Supreme Court.

Texaco Chairman Alfred DeCrane said Friday that his company remains willing to settle the case out of court, but a spokesman for Houston-based Pennzoil said Texaco has thus far ``not shown any real desire to settle.``

Asked whether the ruling might put pressure on the companies to settle, Daniel McKinley, an analyst with Smith Barney, Harris Upham & Co., said, ``I think the opposite is true. I think this diminishes the chances.``

``It increases Pennzoil`s expectations and is not going to change Texaco`s expections, so the differences between the two will actually widen.`` But Thomas Lewis, an analyst with Duff & Phelps Inc., said Pennzoil might soon be more willing to settle in order to keep the case from going to the U.S. Supreme Court, which could throw out the entire award and order a new trial.

The case started when Pennzoil sued, alleging that a merger between Pennzoil and Getty reached in January, 1984, failed when White Plains, N.Y.-based Texaco entered with a higher bid for Getty stock and acquired the company later than year.

Texaco has argued that it knew of no contract between Pennzoil and Getty. The jury sided with Pennzoil and awarded the mammoth amount of actual damages based on Pennzoil`s argument that it would cost $7.53 billion to drill for as much oil as it would have received by merging with Getty.

Texaco appealed the ruling to the state appeals court in July. But under Texas state law, to appeal the matter Texaco had to post a bond equal to the $10.53 billion total judgment. Texaco has said paying that amount would force it into bankrupcty court.

Texaco appealed the requirement to a U.S. District Court judge in White Plains, who lowered the bond to $1 billion. Last month, the U.S. Supreme Court heard oral arguments from Pennzoil and Texaco attorneys on the judge`s ruling. Meanwhile, the Texas court of appeals heard arguments on Texaco`s appeal of the damages.

Its 162-page opinion said: ``Though the compensatory damages are large, they are supported by the evidence, and were not the result of mere passion, prejudice or improper motive.``